Czech PM Necas insisting on increase in VAT to curb deficit

If the 17.5 percent VAT were valid next year, the budget deficit would increase by 24 billion crowns, Necas said.

"Accepting the 17.5 percent now means increasing the state budget deficit by 24 billion, compared with the existing proposal. This is simply a figure that cannot be covered," Necas said.

Necas said it would also be a significant inflation impulse, he added.

"No one can seriously believe that in the existing economic situation, everyone in the chain between the manufacturers and sellers will give up the margin of 2.5 percent if the basic VAT rate fell from 20 percent to 17.5 percent," Necas said.

Necas stressed that the lowered tax on food and drugs, now standing at 14 percent, would be increased.

The implementation of a unified VAT is possible because on Thursday, six ODS deputies refused to vote for the government-proposed increase in VAT by 1 percent in the Chamber of Deputies.

Petr Tluchor, one of the rebels, said the plan was against the ODS programme.

Necas said the government would not have proposed the increase if the Czech economy were not affected by a recession.

Necas stressed that the VAT had been increased by 18 out of the 27 EU countries.

As the rebels did not vote for the government-proposed crucial rise in VAT on Thursday, the preparation of the budget bill for for next year is threatened.

As a result, Necas has vowed to come up again with the legislation, but to link it with a confidence vote in his coalition three-party government.

Along with a 1 percent rise in VAT, the bill was to impose a tax on people with high incomes, to reduce the refund of consumer tax on diesel for farmers and to unify welfare benefits for housing.

"If we are to continue with the consolidation effort, we have to push the deficit under 3 percent of GDP. This is impossible without the package," Necas said.

Turning to a different affair, Necas told CT he had sent a personal letter to President Vaclav Klaus in which he excused himself for his statement about "economic idiocy" he made in connection with the government effort to raise the VAT.

Klaus had criticised the package, arguing that rising taxes at this time was economic suicide.

($1 = 19.348 crowns)

Author: ČTK
www.ctk.cz